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Management Buy-ins and Buy-outs

Many people dream of running their own business ...and the current high level of Venture Capital funds available means the dream is a real possibility for more and more people. For some, the route to becoming a business owner will mean starting from scratch. For many, however, it will involve taking over an existing business, often by way of a Management Buy-Out (MBO) or a Management Buy-In (MBI).

Management Buy-Out is the term applied when a business is sold to the existing management team. Often this occurs when large companies seek to dispose of parts of the business or when the existing owner-manager is looking to retire.

The existing management are often the people in the best position to take the business forward as they have expert knowledge of the company and its work-force. Strategically, they also present a more favourable option to the existing owner than selling to a competitor or closing the business down.

The main problems for the buy-out team will be securing the necessary finance. MBOs generally require more capital than a start-up or expansion scheme.

Management Buy-In is the term applied when an outside management team buys a stake in an existing business. Typically this happens where the business is under-performing due to weak management or lack of suitable expertise or where the business growth demands a more knowledgeable and experienced management team.

The MBI enables the business to inject the depth of experience it requires and the new managers share in the future profits they generate.